WTI (Dec) $81.02 -$1.29, Brent (Jan)* $85.02 -$2.39, Diff -$4.00 -$1.14.

USNG (Dec) $3.58 +22.5c, UKNG (Dec) 121.5p -14.0p, TTF (Dec) €47.15 -€4.5.

*Brent December contract expiry.

Oil price

Another weak day yesterday as the Fed meeting today and demand concerns took centre stage from the war in the Middle East, today that is somewhat reversed as Israel bombing moves up a degree. The API stats after hours showed a build of 1.347m barrels of crude while gasoline was a draw of 357/- b’s and in distillates drew 2.484m as one might expect at this time of the year. EIA stats tonight.

Zephyr Energy

Zephyr has provided updates on its non-operated asset portfolio in the Williston Basin, North Dakota, U.S. and on its associated borrowings.

Slawson wells commence production

In December 2022, the Company announced that it had acquired a working-interest in six recently spudded wells operated by Slawson Exploration Company. The working interests acquired range from 11% to 32% and Zephyr’s management estimated the Wells to contain 2P reserves, net to Zephyr, of circa 550,000 barrels of oil equivalent.

Following the recent completion of the associated production facilities, the Company is pleased to announce that is has been notified by Slawson that the Wells are scheduled to be brought online today, 1 November 2023.

The Wells will provide a significant near-term production boost and are expected to generate substantial cashflows for the Company which can be reinvested into the development of its project in the Paradox Basin, Utah, U.S. or into additional non-operated investment opportunities.

Updates on the Wells will be provided in the Company’s third quarter 2023 Williston Basin update, which is expected to be announced in mid-November 2023, by which time the Company is expected to have around two weeks of production data.

Semi-annual debt redetermination

Zephyr is pleased to announce a successful outcome to the semi-annual redetermination of the Company’s revolving credit facility, carried out by the Company’s senior lender, North-Dakota based First International Bank and Trust.

The redetermination process confirmed the existing amounts available under the RCF, with the borrowing base remaining at US$13 million, the level at which it is currently drawn.  In addition to the RCF, at 31 October 2023, Zephyr had an additional US$11.7 million of outstanding borrowings on its amortising senior bank term loan with FIBT (versus US$15.8 million at 31 October 2022).

No value was ascribed to the new Slawson production during the redetermination process (due to production not commencing during the FIBT evaluation period), but Zephyr does expect that the newly commenced Slawson production will allow for a significantly enhanced borrowing base once production is established.

Investor Webinar

The Company will be presenting an investor webinar today at 5.30pm (U.K. local time) to provide an update on Zephyr’s activities. You can register for the event by using the following link:

https://www.turnerpope.com/register/

Good news here as the Slawson wells coming onstream will add decent production and revenue to Zephyr which will be allocated to the Paradox campaign or more non-operated production. 

At the same time there has been a successful outcome to the semi-annual redetermination of the Company’s revolving credit facility, carried out by the Company’s senior lender, North-Dakota based First International Bank and Trust.

Regulation stuff here from Zephyr who remain up there in the best managements in the sector as they have developed a fine non-operated portfolio here, also the semi-annual redetermination is a bit light as it has yet to include the Slawson wells going live today.

Important call this evening…

United Oil & Gas- Quattro breaks down…

United has announced the termination of the Asset Purchase Agreement with Quattro Energy Limited under which the parties had agreed to the conditional sale by United to Quattro of the UK Central North Sea Licence P2519 containing the Maria discovery in Block 15/18. 

On 4 October 2023 United announced that the long stop date for the satisfaction of the APA conditions had been further extended to 27 October 2023. Whilst the regulatory consent for the transfer of the licence had been approved, Quattro had not satisfied the funding conditions under the APA by the extended long stop date and the parties have not agreed to a further extension.   

Notwithstanding the prospectivity of this licence, against the backdrop of the current regulatory and fiscal challenges impacting the UK North Sea undermining investor confidence in the progression of potential developments in this sector, Quattro have been unable to raise the funds to complete the transaction.

Further, the current phase of the Licence expires on 30 November 2023 and a firm commitment to drill a well in the next phase of the licence is required to continue the Licence beyond this date. Whilst United recognise the potential prospectivity of a development on this Licence, having exhausted all other available avenues to progress this opportunity, United has made the decision not to apply to move into the next phase of the Licence. It is therefore expected that the Company’s interest in this Licence will cease on the 30  November 2023. As at 30 June 2023, the Group carried an intangible balance of $1.0m representing the amount capitalised to that date on the Maria discovery.  

Brian Larkin, Chief Executive Officer commented:

“Over recent years, we have successfully monetised our interests in licences in both the North Sea and in Italy, using the proceeds to fund our activities in Jamaica, the North Sea and also corporate G&A. We had identified our interest in the Maria licence as non-core to our future strategy and on that basis undertook a farm-out process which resulted in the agreement to sell to Quattro on the terms announced in January this year. Since signing this agreement with Quattro, we have sought to support their efforts to raise the funds required to complete this transaction and had regular interaction with the Quattro team and their advisors as they progressed their funding process. It is therefore a disappointing outcome for both parties, that due to the challenging regulatory and fiscal backdrop in the North Sea, Quattro were unable to complete their funding process. Throughout the last 12 months, the company has incurred only licence costs in relation to the Maria licence, the cost of which is effectively covered by the $100k non-refundable deposit received in September.” 

“Our focus remains on progressing the farm-out of Jamaica and the upcoming drilling activities in Egypt including the drilling of the ASD-S-1X exploration well later this year.”

This was likely the worst kept secret in the sector right now and UOG should be congratulated for their perseverance and vain hope that Quattro were ever going to deliver the goods. The fact that the deal did not close is clearly as Quattro couldn’t raise the brass to pay but that is a knock-on from the awful noise around UK Fiscal policy with regard to confidence in investing in the UKCS. 

So UOG move on, Maria has now gone west as the licence expires this month and there is no attraction to renewing it without any incentive to take on a commitment. Whilst they have spent a bit on the licence they have got a fee from Quattro to deaden the pain. 

It sounds as if there is something on the way with regard to Jamaica, a preferred partner has been selected and so hopefully this potentially huge asset might lift the gloom around UOG. And of course despite a short delay due to rig unavailability there will be drilling in Egypt soon. So, put this behind you and continue to maintain confidence in the company. 

Prospex Energy

Prospex has provided an Operational Update including production rates and income for the three months ended 30 September 2023 from the Podere Maiar-1 gas facility of the Selva Field which is operated by Po Valley Operations Pty Limited, a wholly owned subsidiary of Po Valley Energy Limited.

Po Valley Energy has a 63% working interest of the Selva Malvezzi production concession, while Prospex has the remaining 37% working interest.

Operational and Financial Overview

·    PM-1 commenced gas production on 4 July 2023.

·    Following a four-week ramp-up and commissioning programme the PM-1 well flowed at daily production levels of c.72,000 standard cubic metres per day (scm/d) during the initial testing period, which is expected to be concluded by the end of December 2023.

·    October production is temporarily running at c.62,000 scm/d as part of the testing programme which is expected to increase in November.

·    Longer term production rates from the well are targeting at least 80,000 scm/d.

·    All the PM-1 gas is sold to BP Gas Marketing under the 18-month supply agreement (announced on 14 February 2023) at a supply price linked to Italy’s “Heren PSV day ahead mid” price assessment which tracks the publicly available Dutch TTF spot prices[1].

·    Gas prices have increased recently from €0.32/scm (€30.3/MWhr) to a current spot price of €0.53/scm (€50.3/MWhr).  The forward curve TTF gas prices are currently above €50/MWhr through to the end of Q1 2025[1].

·    Gross quarterly production from the Selva Malvezzi production concession was 5,658,117 scm (2,093,503 scm net to PXEN) and gross revenue for the quarter was €1,937,072 (€716,717 net to PXEN).

·    Further upside potential at the Selva Malvezzi Production Concession is advancing at pace with the operator progressing agreements with local landowners and the permitting process with the regulatory authorities to deliver the drilling programmes at Selva North, South and East.

Mark Routh, Prospex’s CEO, commented:

“Delivering the stable production rates and moreover securing the substantial cash flows from the brand-new gas plant at the PM-1 gas facility is a significant achievement by the operator of our Selva Malvezzi production concession, Po Valley Energy.  This places Prospex in the enviable position of having stable production and income from two onshore natural gas fields one in Spain and one in Italy.

“Prospex is working together with the Po Valley team and using this production income to progress the necessary activities to secure the development drilling programmes for the other structures on the production concession in order to convert those contingent and prospective resources into proved, developed and producing reserves in the near term.

“We have delivered a key step in the Company’s strategy to become a diversified energy producer with multiple producing assets principally in lower risk, onshore European markets with ready access to infrastructure.  We are  proud to be supporting the European Energy sector with producing assets in both Italy and Spain and look forward to updating shareholders on our continued progress.”

Production is now stable and cash flow from the PM-1 gas facility has reflected lower gas prices but TTF is improving and the forward strip looks good for Prospex. The market should be giving at least a bit more credit for this, at 6.75p it is still 60% off the St Valentines Day peak.

And finally…

In the Cricket World Cup Afghanistan beat Sri Lanka and Pakistan beat the Bangas yesterday, today the Proteas, batting first have scored 357-4 which the Black Caps are about to challenge. More interestingly it seems that Australia’s Glenn Maxwell fell off the back of a golf buggy and has concussion which keeps him out of the England match at the weekend…

Tonight it is the Jelly Babies Cup or whatever it is called nowadays with some big fixtures. The Hammers are hosting the Gooners, Liverpool go to the Cherries, Chelsea host Blackburn Rovers, the Toffees entertain Burnley and in the tie of the round the impressive Tractor Boys welcome the Cottagers.